The Big Tax That Republicans Agree Should Go Away Now
The House of Representatives and the Senate have each offered their proposals for tax reform, and there are many areas in which the two proposals disagree. Yet one item that they share in common is their plan to repeal the alternative minimum tax. Many see the AMT as a tax that only affects the extremely rich, but the reality is a bit more complicated than that. Some wealthy taxpayers do stand to gain from AMT repeal, but some who would consider themselves upper-middle class in pricier areas of the country would also potentially see some benefit as well.
Various forms of the alternative minimum tax have existed since the 1960s, but the version of the AMT in current tax law took effect in 1982. The idea behind the AMT is to ensure that taxpayers with high income pay at least some minimum level of tax, regardless of how many deductions, credits, and other tax breaks they qualify to take.
For a long time, only the highest-income taxpayers fell under the alternative minimum tax. Over the years, more people became subject to AMT, because until very recently, the income limits at which the AMT became effective weren't indexed for inflation. Fortunately, the compromise between Congress and the White House in early 2013 permanently raised exemption amounts and indexed them to inflation in subsequent years, which largely solved the issue of AMT creep. Even so, some of those who consider themselves upper-middle class still have to pay the alternative minimum tax, especially in higher-cost areas.
Source: Fool.com